Chapter 2. Veteran’s Eligibility and Entitlement Overview

[Pages:23]VA Pamphlet 26-7, Revised Chapter 2: Veteran's Eligibility and Entitlement

Chapter 2. Veteran's Eligibility and Entitlement

Overview

In this Chapter This chapter contains the following topics.

Topic

Topic Name

1 How to Establish the Applicant's Eligibility for a VA Loan 2 What the Certificate of Eligibility Tells the Lender 3 How to Apply for a Certificate of Eligibility 4 Proof of Service Requirements 5 Basic Eligibility Requirements 6 Restoration of Previously Used Entitlement 7 Misuse of Veteran's Entitlement 8 Certificate of Veteran Status ? FHA Loans 9 Exhibit 1-A: Quick Reference Table for VA Eligibility

See Page 2-2 2-4 2-9 2-12 2-15 2-18 2-19 2-20 2-22

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VA Pamphlet 26-7, Revised Chapter 2: Veteran's Eligibility and Entitlement

1. How to Establish the Applicant's Eligibility for a VA Loan

Change Date

December 26, 2012, Change 22 ? This section has been updated to make minor grammatical edits.

a. What is Eligibility?

Eligibility means the veteran meets the basic criteria of appropriate length and character of service to utilize the home loan benefit. Entitlement, which will be discussed later, is the amount a veteran may have available for a guaranty on a loan. An eligible veteran must still meet credit and income standards in order to qualify for a VA-guaranteed loan.

b. The Lender's Role

Before processing and closing a loan for an applicant, the lender must ensure the applicant is an eligible veteran. Lenders should never close a loan before they establish eligibility, since VA cannot guarantee a loan for an ineligible veteran.

Note: A Certificate of Eligibility (COE) is the only reliable Proof of Eligibility for the lender (except in the case of an Interest Rate Reduction Refinancing Loan (IRRRL) which will be discussed in section 1c).

Once a COE is received, there is generally no need to have it updated before loan closing, unless the lender has reason to believe it is inaccurate.

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VA Pamphlet 26-7, Revised Chapter 2: Veteran's Eligibility and Entitlement

1. How to Establish the Applicant's Eligibility for a VA Loan, Continued

b. The Lender's Role (continued)

Although this chapter discusses some of the basic eligibility criteria, it is not intended to provide a lender with all the knowledge necessary to make an eligibility determination; consequently, all the various exceptions and nuances of eligibility are not included. Exhibit 1-A at the end of this chapter provides a quick reference and overview of basic eligibility criteria.

Lenders should use VA's online application to attempt to obtain the COE. Go to VA's Information Portal and select webLGY from applications; then select Eligibility and follow the prompts. In many cases, a COE can be generated in seconds. If not, lenders should select a link to submit an electronic application. This method allows lenders to upload supporting documentation and submit an application electronically to the Eligibility Center.

Veterans may also apply for a COE online at .

Lenders and veterans can still apply by mail by completing VA Form 261880, Request for a Certificate of Eligibility. However, to ensure quicker responses, it is preferable to apply online. Lenders in particular should use the online application, rather than mail.

c. IRRRL Eligibility Determination

VA systems will not generate a VA case number for an IRRRL if there is no record of an active loan. This means if a lender successfully obtains a case number for an IRRRL, no further documentation of eligibility is required.

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VA Pamphlet 26-7, Revised Chapter 2: Veteran's Eligibility and Entitlement

2. What the Certificate of Eligibility Tells the Lender

Change Date

December 26, 2012, Change 22 ? This section has been updated to make minor grammatical edits and correct a hyperlink.

a. Eligibility

The lender may rely on a COE as proof the veteran is eligible for the home loan benefit. Although eligible for the home loan benefit, veterans must still qualify based on income and credit before loan approval is granted.

b. Amount of Entitlement

Entitlement is the amount available for use on a loan. The amount of available basic entitlement is $36,000. This may be reduced if a veteran has used entitlement before which has not been restored. The amount of basic entitlement will be displayed near the center of the COE. For example it may say:

"THIS VETERAN'S BASIC ENTITLEMENT IS $_____. TOTAL ENTITLEMENT CHARGED TO PREVIOUS VA LOANS IS $_____."

For certain loans in excess of $144,000, additional entitlement may be available. For loans greater than $144,000, but less than $417,000, the maximum entitlement is 25 percent of $417,000, which equals $104,250. For loans greater than $417,000, the maximum entitlement is 25 percent of the appropriate "loan limit" which can vary by county. For a description of loan limits, as well as the limits for counties, visit the VA Loan Limits webpage. Please note county limits can change yearly. VA will post the limits for each year on our website as they change.

Even though the veteran may have entitlement for certain loans greater than $144,000, the COE will never reflect this potential "extra" entitlement. Instead, an asterisk by the word "available" refers to a note, which explains the possibility of additional entitlement.

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VA Pamphlet 26-7, Revised Chapter 2: Veteran's Eligibility and Entitlement

2. What the Certificate of Eligibility Tells the Lender,

Continued

b. Amount of Entitlement (continued)

If the veteran previously used entitlement, which has not been restored, available entitlement is reduced by the amount used on the prior loan(s). The lender has two options in this situation:

? Make the loan knowing that VA's guaranty is limited to the amount of available entitlement, or

? Have the veteran apply for restoration of previously used entitlement.

Note: The possible additional entitlement for certain loans in excess of $144,000 may be available even if the veteran has no entitlement or partial basic entitlement. However, in such cases, the lack of full entitlement may result in lenders receiving less than a 25 percent guaranty from VA. It is the lender's responsibility to ensure they receive a sufficient amount of guaranty to satisfy secondary market requirements.

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VA Pamphlet 26-7, Revised Chapter 2: Veteran's Eligibility and Entitlement

2. What the Certificate of Eligibility Tells the Lender,

Continued

c. Funding Fee (FF) Field and Conditions on COE

The "FUNDING FEE" (FF) field appears near the top of the COE. The exemption status, either "EXEMPT," "NON EXEMPT," or "CONTACT RLC," will appear to the right of this field:

? EXEMPT status indicates a veteran is exempt from paying the FF. ? NON EXEMPT status indicates a veteran is not exempt from paying the

FF. ? CONTACT RLC indicates a system-generated determination is not

available.

Note: Regardless of the new FF status shown on the COE, lenders must be sure to read any and all statements appearing in the "CONDITIONS" field, which appears near the middle portion of the COE:

For COEs with "EXEMPT" status, the following "CONDITIONS" may appear: ? "Funding Fee ? Veteran is exempt from Funding Fee due to receipt of

service-connected disability compensation of $___ monthly." ? "Funding Fee ? Veteran is exempt from Funding Fee due to receipt of

service-connected disability compensation. Monthly compensation rate has not been determined to date." ? "Funding Fee ? Please fax a copy of VA Form 26-8937 to the VA Regional Loan Center of jurisdiction." ? "Funding Fee ? Please have the lender contact VA Regional Loan Center for loan processing. Please fax a copy of VA Form 26-8937 to the RLC of jurisdiction."

For COEs with a "NON EXEMPT" status, the following "CONDITIONS" may appear: ? "Funding Fee ? Veteran is not exempt from Funding Fee." ? "Funding Fee ? Veteran is not exempt from Funding Fee due to receipt of

nonservice-connected pension. LOAN APPLICATION WILL REQUIRE PRIOR APPROVAL PROCESSING BY VA."

For COEs with "CONTACT RLC" status, the following "CONDITION" will appear: "Funding Fee ? Please fax a copy of the 26-8937 to the RLC of jurisdiction."

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VA Pamphlet 26-7, Revised Chapter 2: Veteran's Eligibility and Entitlement

2. What the Certificate of Eligibility Tells the Lender,

Continued

d. IRRRL Exemption Status

The Funding Fee Exemption Status on IRRRLs is displayed in webLGY at the time the Case Number is ordered.

e. Exempt Status and Verified Income

Lenders may rely on the "EXEMPT" status appearing next to the "FUNDING FEE" field for verification of FF exemption. Additionally, on COEs with an "EXEMPT" status, lenders may treat any service-connected disability income amount appearing in the "CONDITION" section of the COE as verified income. There is no need to fax in VA Form 26-8937 to confirm the status or amount showing on the COE.

f. Additional Conditions Listed On Some COE Forms

Additional Conditions that the lender and veteran must comply with are listed on the COE, under the Conditions heading.

The following table provides the actions a lender should take for each condition, if applicable:

Conditions

What to Do

Valid unless discharged or

Ensure the veteran is still on active duty

released subsequent to date of before closing the loan. If the veteran is

this certificate. A certification discharged or released prior to loan

of continuous active duty as of closing, request a new eligibility

the date of note is required.

determination from VA.

Excluded entitlement previously If the entitlement used for the prior loan

used for VA Loan Identification identified in this condition is needed for

Number (LIN) as shown herein the proposed loan, ensure the proposed

is available only for use in

loan will be secured by the same property

connection with the property as the prior loan. (Cash-out refinance on

that secured that loan.

a prior VA loan.)

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VA Pamphlet 26-7, Revised Chapter 2: Veteran's Eligibility and Entitlement

2. What the Certificate of Eligibility Tells the Lender,

Continued

f. Additional Conditions Listed On Some COE Forms (continued)

Conditions Entitlement has been used for manufactured home purposes. Remaining entitlement for additional manufactured home use is: $ [amount]. Not eligible for any loan to purchase a manufactured home unit until veteran disposes of unit purchased with manufactured home loan number VA LIN [number]. Entitlement previously used for VA LIN [number] has been restored without disposal of the property, under provision of 38 U.S.C. 3702b(4). Any future restoration requires disposal of all property obtained with a VA loan.

What to Do If the proposed loan involves a manufactured home, adhere to the entitlement limit indicated.

If the proposed loan involves a manufactured home, ensure that the veteran has disposed of the unit indicated.

This is information for the veteran. The lender need not be concerned if this condition is applicable, as long as the available entitlement shown on the COE is sufficient for the lender's purposes.

g. Subsequent Use Funding Fee Condition

The "Subsequent Use Funding Fee" Condition indicates the veteran has used their home loan benefit before, so a higher funding fee is required.

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